ON Semiconductor (ON) Q1 FY26 earnings call: guidance and Q&A

How will onsemi's structural and secular growth drivers (AI data center, zonal, Treo) become visible to investors and when will they dominate revenue?

Hassane explained that AI data center growth is already visible, doubling in 2026. Treo's 2.5x sequential revenue increase will drive both top-line growth and significant gross margin expansion (60-70%). The AI halo effect will boost industrial business (40% YoY growth). These drivers will increasingly reflect in both top-line and margin expansion throughout 2026.

“So overall, I would say investors are going to see a lot of the growth in the right markets and the right applications, both from a top line, but more importantly, the margin expansion.”

asked by Ross Seymore · answered by Hassane El-Khoury

What are the key levers for gross margin expansion, and should investors expect larger step functions in the second half of the year?

Thad outlined several levers: utilization (25-30 bps per point), Fab Right initiatives (200 bps longer term), favorable mix (200 bps longer term), and the impact of fab divestments (200 bps in 2027+), which collectively could push gross margin over 50%. He confirmed expectations for sequential expansion throughout the year, with potentially larger step functions in the second half as pricing actions take effect.

“So when you start to stack it up, you can get over 50% when you do the math. But look, we expect expansion throughout the remainder of this year and probably larger step functions than what you saw here in the first quarter.”

asked by Ross Seymore · answered by Thad Trent

How does onsemi view the second half of 2026 compared to last year's muted second half, regarding customer discussions and demand visibility?

Hassane stated that all demand signals (book-to-bill, order patterns, lead times) are positive, and the company expects the second half to outgrow the first half. This is driven by continued ramps in AI data center, automotive (especially new 900V EV models in China), and industrial recovery. He contrasted this with a much better outlook than what was seen in the previous year.

“All of these positive patterns started and will continue through the second half of the year. That was not the sentiment that I personally had last year. So in contrast, we see a much better outlook than we did last year.”

asked by Vivek Arya · answered by Hassane El-Khoury

How large is the AI data center segment for onsemi, and does the company have the internal/inorganic resources to be a major player?

Hassane noted that AI revenue will double from $250 million in 2025 to over $500 million in 2026. He affirmed that onsemi possesses all necessary technologies (silicon, SiC, JFET, Treo) to cover the entire power tree from 'wall to core.' He highlighted past inorganic acquisitions (Aura, JFET SiC) as contributing to a well-rounded power technology platform, confirming the company's focus and resources to be a major player without needing further inorganic moves.

“So to answer your question directly, we absolutely have the focus that we need to be a major player in power for AI data center.”

asked by Vivek Arya · answered by Hassane El-Khoury

As AI data center architectures move to higher voltage distribution, where are the biggest incremental content opportunities for onsemi?

Hassane explained that incremental opportunities exist from the high-voltage infrastructure (including solid-state transformers) all the way to the processor. He highlighted that content within an 800-volt rack can be nearly 10x higher, increasing from $9,500 to $115,000. He emphasized that onsemi's expertise in high-voltage solutions positions them well across this expanded power tree.

“So although our content is almost 10x inside the rack, there is additional incremental content from the rack all the way to the infrastructure that we also participate in because this is all high voltage, which is exactly right in our sweet spot.”

asked by Neil Young · answered by Hassane El-Khoury

At what point will onsemi need to increase its capital intensity above the mid-single-digit percentage to support growth in 2027 and 2028?

Thad stated that onsemi does not anticipate any change to its capital intensity, expecting it to remain in the mid-single-digit percentage of revenue for the foreseeable future, including 2027. Hassane added that investments made over the past 2-3 years have built sufficient capacity (e.g., East Fishkill for Treo) to support new product ramps. The company has significant headroom, needing 25-30% higher revenue than today to reach full utilization (over 90%) before requiring new capacity.

“So Gary, I don't anticipate any change to our capital intensity. I expect it to be in the mid-single-digit percentage of revenue for the foreseeable future and that goes into 2027 as well.”

asked by Gary Mobley · answered by Thad Trent

Are lead times extending, are there hotspots, and is there anxiety around the inventory situation, particularly with automotive OEMs?

Thad noted that lead times have stretched slightly from 23 weeks in Q4 to 26 weeks in Q1, with an increase in short-lead-time and expedite orders. Hassane confirmed that some technologies are already on allocation, and he is receiving calls from OEMs. He suggested that while automotive strength is not fully visible yet, the anxiety about future shortages is present, leading some OEMs to consider direct semiconductor sourcing.

“I am starting to get calls. We are on allocation in certain technologies. I'm very clear about that.”

asked by Joseph Moore · answered by Hassane El-Khoury